Banking on Death, or Investing in Life, by Robin Blackburn

Alan Walker- originator of 'stakeholder pensions' - hails a timely exposé of the retirement racket

When I sent my father's death certificate to his company pension scheme, I was informed that payments would cease after the current month. He died, aged 82, having paid contributions for 45 years, and had drawn his pension for 20 years. Like millions of his contemporaries, he did not exercise any ownership over his pension, had no idea of the nature of the fund, and no involvement beyond the monthly cheque. His final-salary pension was recently closed to new members, replaced by a defined-contribution one.

This is the now-familiar pension-fund response to an ageing population: because people are living longer, the morbidity bonus that once assisted them has ended. The economics of "banking on death" has been made obsolete by longevity. It follows that benefits for prospective pensioners must be curtailed. The assumptions and institutions behind this financial logic are the subjects of this important and timely book.

Robin Blackburn tackles the pension industry, which controls more than half the quoted equity in the UK and US and dwarfs even giants such as Microsoft. The sheer size of funds gives managers enormous power, particularly in what he labels the Anglo-Saxon stock-market economies. He subjects these funds to critiques both from the perspective of political economy – and on their home ground. His central thesis is that these funds contribute "grey capital"; the property rights they represent are a grey area, in law and the economy. This legal deficit enables fund managers to act primarily in the interests of their shareholders, rather than scheme members.

Baldly stated, this could be interpreted as a capitalist conspiracy. Blackburn does occasionally give this impression, but this doorstep of a book cannot be pigeon-holed so crudely. Banking on Death is a high-class analysis of the political economy of private pensions. It provides a meticulously researched analysis of institutions, structures and rules – trustees, managers, consultants, the power of the sponsor and the limited rights of policyholders – and how, in conjunction, these produce a poor deal for pensioners and society. It contains masses of detailed information about shareholding and trading, as well as on the development of pension systems and the limited nature of "universalism", where public pensions depend on contributions (though the truly universal citizenship model, as in Denmark, is not invoked.)

Case studies enliven the text, even if they sometimes fit the mould of a John Pilger investigation. There are gaps: for example, elements of the story of how stakeholder pensions become government policy. (I invented the term when Labour was in opposition.) The book is also gender-blind in a field where gender is critical, and frequent use of the term "elderly" displays a lack of familiarity with the gerontological literature. Nonetheless, this is one of the best books I have read on pension funds and, broadly, on the global role of financial capitalism.

Blackburn argues compellingly that pension funds have failed to deliver decent returns. They consistently underperform the market and charge fees for doing so. High charges, and the system that encourages transactions in shares, he labels the "cost disease" of funds. These failures remain hidden by a cosy aura of respectability, and reinforced by financial consultants, which protects executives from scrutiny. Moreover, public policy plays a key role as these funds rely on tax breaks.

A strength of the book is its comparison between the UK and US, showing how the latter gives greater weight to the non-commercial voices of civil society. That prevented Reagan from damaging US public pensions in the way that Thatcher did here. This legacy, and the power of the financial services industry, earns the UK the dubious honour of being the "laboratory of grey capitalism". Despite the pensions mis-selling scandal of the Eighties and the collapse of Equitable Life, the UK model of personal pensions is being hawked globally by the World Bank, including within the EU.

Blackburn shows the sort of model the UK offers: a desperately low basic state pension, with millions encouraged to resort to personal pensions which, for many, will not deliver a decent income. Half the population has no second pension. Some three million older people live in poverty. He fails to emphasise that those served least well by this system are women.

This book is a very welcome antidote to the stifling complacency and self-interest of the financial services industry, the so-called independent reports of people such as Alan Pickering (which argued for stripping out rights from occupational pensions), and the void in public policy. Blackburn readily acknowledges the weakness of his prescriptions, which are often tentative but driven by an overt commitment to social responsibility and justice – again, a refreshing change from recent reports.

Much of what he proposes will not find favour with the Government (such as universal state pensions set at 40 per cent of average earnings, indexed to them, with higher contributions from employers). Nor will the anti-capitalist find much joy. What Blackburn seeks to achieve is the construction of institutions designed to remove funds from an "irresponsible" financial system by strengthening the hands of workers, policyholders and electorate – in essence, by enabling policyholders to control their own pensions and investments.

These are important goals, even if the detail is lacking and the issue of political feasibility unaddressed. Making the financial services industry more accountable cannot be left off the policy agenda for much longer. This industry has a case to answer for its failure to deliver on pensions, and this book makes it powerfully.

Alan Walker is professor of social policy at the University of Sheffield and director of the Economic and Social Research Council's 'Growing Older' programme